The Euro Is Tanking And Bond Yields Across The Eurozone Are Spiking

All seemed well afterAngela Merkel got her waywith a plan, set to be put into place by 2013, that would see a permanent bailout fund for the eurozone and the possibility of restructuring.

But Ireland got downgraded this morning, and CDS is now spiking again. The euro is down on all the uncertainty.

And, perhaps most importantly, bond yields are now surging. Yes, even German bunds.

But why is that? Spain.

From Waverly Advisors (emphasis ours):

Meanwhile headlines were dominated by analysts prediction thedire impact of the rising cost of funds for Spain's banking sector. With German 10 year yields now crossing firmly above 3% we re-iterate our view thatrising yields on an absolute basis for the EU as a whole is now more critical than regional yield divergenceas it will providing increasingly less flexibility for primary economies to respond to crisis (see chart below). We therefore view the situation in Europe as continuing to deteriorate and this remains a primary risk factor in our models.

While yields are surging in the U.S. too, the European rise may be more worrying in relation to the funding of future bailouts.